Manufacturing slowdown points to interest rate cut

Pressure on the Bank of England to cut interest rates again next week rose today when further evidence arrived of a decline in the economy.

The monthly survey from the Chartered Institute of Purchasing and Supply revealed that the manufacturing sector is slowing, with a large drop in new orders.

The Bank's monetary policy committee begins its first meeting of 2008 next Wednesday and will be tempted to lower rates from 5.5%, just weeks after making the first of what is likely to be a series of cuts.

The CIPS survey is a monthly measure of activity, with any number-above 50 indicating expansion and any number below a sign of a serious slump.

December's number was 52.9, down from 54.3 in November, meaning that manufacturing is growing but at a much slower pace. The figurewas worse than analysts were expecting.

Paul Dales of Capital Economics said it is now just 'a matter of time' before the CIPS survey shows outright falls in output.

The survey suggests that companies-that have been hit by rising costs for food and other essentials have been holding back on other large expenditures.

Bank of England Governor Mervyn King remains concerned that if interest rates are cut too rapidly, inflation will spin out of control. Recent measures of inflation, however, have been steady, suggesting he and his colleagues have room for manoeuvre.

Numbers due on Friday about the state of the services sector will now be watched especially closely. Some economists think rates will be as low as 4% by the end of the year.